Global steam coal price forecast (July 2014)

In 2014, Metal Expert Consulting continues to publish open quarterly reports to share its understanding of the steam coal market development in a medium and long term and compare it with the consensus forecast of investment companies and analysts.

Similar to the coking coal segment, global prices for steam coal have been relatively stable throughout Q2. For instance, the price for Australian coal 6,600 kcal/kg was $73/t FOB Newcastle at the end of June.

Forecasts of investment companies prepared before June have been disregarded because of a sharp drop of global coal prices. We have considered only reports published in the past two months when preparing our consensus forecast.

Most investment banks expect a moderate recovery of global prices for steam coal by the end of 2014. The most optimistic forecasts (correspond to the maximum price forecast) are given by Credit Suisse, Commonwealth Bank, UBS and Investec, while the most pessimistic ones (correspond to the minimum forecast) are published by Numis and Capital Economics.

Note: To get the forecasts, all available prices have been adjusted to a common benchmark basis – the FOB Australia price for 6,600 kcal/kg steam coal.

The comparison of actual price for steam coal in Q2 ($73/t) and the price we forecast in April shows that we have overestimated the market ability to accept the rise. Meanwhile, consensus forecast of investment companies has a greater inaccuracy of some 14% ($10/t).

Metal Expert Consulting’s methodology of forecasting global steam coal prices is based on mixed forecasting methods and includes models of non-linear dynamics, demand and supply balance in the global coal market, and estimation of key suppliers’ costs. For more details on Metal Expert Consulting’s forecasting methods, see April report Global Iron Ore Price Forecast.

Comparison of steam coal price forecast accuracy of MEC and industry analysts over the year

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Fact

79

73

-

-

-

-

-

-

Consensus forecast (investment banks) - July13

94

94

96

97

-

-

-

-

Metal Expert Consulting – July 13 (basic scenario)

91

92

94

94

-

-

-

-

Metal Expert Consulting - July 13 (альтернативный сценарий)

85

80

81

84

-

-

-

-

Consensus forecast (investment banks) – Oct 13

90

90

90

92

-

-

-

-

Metal Expert Consulting - Oct 13

84

80

83

85

-

-

-

-

Consensus forecast (investment banks) – Jan 14

85

84

85

86

-

-

-

-

Metal Expert Consulting – Jan 14

82

82

84

85

-

-

-

-

Consensus forecast (investment banks) – Apr 14

-

83

84

85

87

88

89

89

Metal Expert Consulting – Apr 14

-

81

78

78

75

82

78

78

The graph below shows comparison of Metal Expert Consulting’s renewed export price forecast for Australian steam coal with the prices that investment and industry analysts expect (adjusted to the same basis).

According to Metal Expert Consulting’s estimates, prices for steam coal are likely to amount to $80/t in the medium term (to $75/t in Q4). In 2016, prices will get bottom-low, while in a long term they will go up to $84/t FOB Australia.